Irish Shopping Centres and Retail Parks: A Stock Analysis SPRING 2013

part of the UGL global network Irish Shopping Centres and Retail Parks: A Stock Analysis

The following report provides an overview of the performance of the Irish retail market; specifi cally the Irish shopping centre market and the Irish retail park market. The report commences with an overview of the general economic environment in Ireland together with an overview of the investment conditions in the retail property market. Additionally, a detailed analysis of the Irish shopping centre market is provided in terms of the size of the market on a county by county basis, the gross lettable area per thousand of the population in each location and the classifi cation of the top shopping centres on the basis of key criteria; size, population density, access to transport and the presence of leading retailers. The fi nal section of the report provides an overview Table 1 of the Irish Retail Park Market in terms of market Ireland’s Top Shopping Centres - 2013 size and density levels on a regional basis.

Density Size Rating Region (Per ‘000 of Population)

Dublin Very Large AAA++

The Large AAA+ Centre

Dublin The Square Town Centre Large AAA+

Liffey Valley Shopping Dublin Large AAA+ Centre The Pavilions Shopping Dublin Large AAA+ Centre, Swords Crescent Shopping Mid-West Medium AAA Centre, Co.

Dublin Medium AAA

Navan Town Centre, Mid-East Medium AAA Co. Meath Whitewater Shopping Mid-East Medium AAA Centre, Kildare Shopping Dublin Medium AAA Centre

Source: DTZ Sherry FitzGerald Research

2 IRISh ShOPPING CENTRES AND RETAIL PARKS: A STOCK ANALySIS | Spring 2013 Economic Overview

The Irish economy has endured a volatile Growth in 2013 will continue to be driven by the external environment; however the recovery is also dependent on a journey over the past four to five years but resumption of consumer spending. Despite high unemployment, an element of stability has begun to emerge. on-going fiscal austerity and deleveraging of debt, domestic As recently as the beginning of 2012, the demand has shown signs of stabilisation. Preliminary figures outlook for the economy was largely uncertain from the Quarterly National Accounts (QNA) for quarter three reveal encouraging signs of a tentative recovery in domestic stemming from external pressures; in particular demand, rebounding from a sharp contraction during the second the euro zone financial crisis. However, as quarter. Two of the three components of domestic demand, the year progressed a combination of policy consumer spending and investment spending, recorded growth in the three month period. In particular, a significant increase of initiatives implemented at both EU level and 8.5% in investment spending was the main driver of the increase domestically resulted in tentative signs of in domestic. stabilisation emerging in the economy. Consumer spending also recorded a quarterly increase rising by The outlook for 2013 is now relatively optimistic as the Irish a modest 0.5% during the three month period; this compares to economy continues its course towards economic recovery. That a 0.1% decline recorded in the previous quarter. The Department said fragilities remain; in particular, slowing economic growth in of Finance forecast consumer spending to contract by 2% in the UK and the Euro area continues to pose downside risks to the 2012 while a more moderate contraction 0.5% is forecast for growth outlook. 2013. Overseas confidence in Ireland has Furthermore Irish consumer sentiment, although weak, improved The outlook for 2013 improved considerably, boosted by in 2012 relative to 2011. Latest results from the KBC Bank Ireland/ the long-awaited deal with the ECB ESRI Consumer Sentiment Index for January 2013 reveal that is now relatively Irish consumer sentiment rebounded to a five-month high to optimistic as the Irish to restructure a costly promissory note into less expensive sovereign 64.2 from a sharp fall December. The lift in the index in January economy continues possibly reflects short term indicators such as post budget its course towards debt. The landmark deal should see Ireland regain its funding digestion and the January sales. The index may be subject to economic recovery independence, by increasing its some fluctuation in the coming months, particularly in relation to chances of exiting the bailout the impact of the looming property tax. programme and re-entering the financial markets by year end. On a further positive note, both Standard & Poor and Fitch have upgraded Ireland’s sovereign debt rating outlook from negative to stable. Figure 1 While final growth figures for 2012 are not yet available; the Retail Sales Volume Growth by Sector 2012 (annual % change) Department of Finance have forecast that the Irish economy will achieve modest growth of less than 1% in 2012, before gradually improving to 1.5% in 2013.

Source: CSO Spring 2013 | Irish Shopping Centres and Retail Parks: A Stock Analysis 3 Economic Overview Retail Property Performance

The first six months of 2012 witnessed mixed performance in The latest data from the Investment Property Databank (IPD) retail sales across all sectors. However, the latter part of the reveals that 2012 marked the first annual positive return for the year saw signs of stabilisation emerge in line with improvements Irish market since 2007. According to IPD, total return for 2012 in sentiment which resulted in an uplift in retail sales. However, stood at 3.1%, boosted by strong income returns of 10.1%. Capital this was short-lived as the final two months of the year saw a values on the other hand continued to decline during 2012, albeit contraction in retail sales, which was most likely stemming from at a much reduced rate. Capital values fell by 6.4% during the Budget 2013 expectations. For 2012 twelve month period; while remaining in negative territory it as a whole, the volume of retail sales compares favourably to a reduction of 11.4% in 2011. declined by 1.1% when compared with The retail sector, which remains susceptible to adverse economic The volume of retail the same period in 2011. However, developments, continued to struggle during 2012. The latest IPD sales declined at an when motor trade figures are figures reveal that total return weakened during the latter half annual rate of 1.1% excluded, annual data reveals that of 2012 and as a result, registered a return of just 0.5% for the in 2012 headline sales grew by 1%. year as a whole. This is compared to returns of 4.9% and 4% for Despite a strong rebound in consumer office and industrial property respectively during the period. sentiment in January, the latest figures from the Central The quarterly income return for retail was steady during the year Statistics Office (CSO) reveal that retails sales were weaker than with 8.8% recorded for the year as a whole. The retail sector expected in January 2013. The volume of retail sales fell by 1.7% suffered the strongest sector decline in capital values falling by on a monthly basis thus marking the third consecutive monthly 7.6% in 2012. This brings the cumulative decline in capital values decline. When motor trades are excluded, sales were down 1.4% to -71% since the peak in December 2007. on December. The results are a reflection of the impact of Budget 2013 on household disposable incomes; in the manner of changes to PRSI allowances and reductions in social benefits.

Figure 2 Retail Quarterly Total Return & Equivalent Yield

Source: IPD

4 Irish Shopping Centres and Retail Parks: A Stock Analysis | Spring 2013 Shopping Centre Market

After more than a decade of robust expansion, Table 2 construction activity in the Irish shopping Regional Shopping Centre Density Levels centre market has declined notably in the past five years. 2012 marked the first calendar Density year since 1966 when no shopping centre Region (Per ‘000 of Population) development occurred in the entire country. Border 439 Ireland’s first shopping centre opened in 1966 in Stillorgan, Co. Dublin and since then the stock of shopping centres in Ireland Dublin 623 has risen to 1.98 million sq m as of December 2012. This equates Mid-East 292 to an average of 432 sq m of shopping centre accommodation per thousand of the population in the state in 2012. However, Midlands 503 across the regions, the spread of accommodation relative to the population ranges from 258 sq m in the west to 623 sq m per Mid-West 399 thousand in Dublin. South-East 423 There are currently 202 purpose-built shopping centres in Ireland, with the majority of centres not surprisingly located in South- West 282 the east of the country. Dublin alone accounts for 64 of the nation’s West 258 shopping centres, equating to 32% Dublin accounts for of the overall stock nationally. In State 432 contrast to this, counties in the 32% of the overall Source: DTZ Sherry FitzGerald Research stock nationally west and midlands have the lowest number of shopping centres, with Figure 3 only one shopping centre in a Distribution of Shopping Centres in Ireland, 2013 number of counties such as Cavan, Leitrim and Roscommon. That said, this analysis is based on a local definition of a shopping centre. In contrast, if the European definition of a shopping centre is applied, the number of developments within this definition falls by 80 to 122. Donegal Under the European definition, a shopping centre must be 3 4 at least 5,000 sq m. Applying this locally, the national total Gross Lettable Area (GLA) falls to 1.72 million sq m as 40% of the countries shopping centres are less than 5,000 sq m. Not Leitrim surprising, Dublin remains the best supplied county, with a GLA 1 Monaghan Sligo of 711,998 sq m. Conversely, other counties find that under this 1 2 1 2 definition their centres would not meet European standards. Cavan Mayo 1 Louth The adjoining map illustrates the number of shopping centres 1 1 Roscommon 4 6 2 in line with the European definition of a shopping centre. The 1 Longford 1 Meath majority of the centres around the country are defined “small” by Westmeath 2 1 the European definition. Dublin is the only county with a “large” Galway 2 3 1 Dublin shopping centre. Furthermore, the Dundrum Town Centre in 24 30 5 4 1 Donegal 3 7 1 Offaly Kildare Dublin is the only centre in Ireland to be deemed “very large” by 3 4 2 2 5 4 1 European standards, with a GLA of approximately 85,300 sq m. Laois Wicklow Clare 3 1 1 4 2 DTZ Sherry FitzGerald Research has undertaken a 2 3 Tipperary Irish Small: <5,000 Sq m Leitrim North Carlow comprehensive analysis of all the shopping centres with a 1 Monaghan 1 1 Sligo 1 2 lettable floor area of greater than 10,000 sq m across all twenty- 1 2 European Small: 5,000 - 19,999 Sq m 1 2 Limerick Tipperary Kilkenny six counties. The study assesses and classifies the retail centres Cavan Wexford Mayo Louth1 6 1 South 2 2 1 3 into five key rankings AAA++, AAA+, AAA, AA and A. The 1ranking1 Ros common 4 6 2 5 2 2 1 Longford European Medium: 20,000 - 39,999 Sq m is based on a number of key criteria such as size, population 1 Meath Waterford density, access to transport, the presence of leading retailers & WestmeaKethrry2 1 1 2 5 1 Cork European Large: 40,000 - 79,999 Sq m Galway 2 3 1 3 Dublin brands and food/entertainment services. 24 30 4 5 1 3 7 1 Offaly Kildare 6 10 1 2 2 5 4 1 European Very Large: 80,000 Sq m + Laois Wicklow Clare 3 1 1 4 2 2 3 Tipperary Irish Small: <5,000 Sq m North Carlow 1 1 1 2 Under the European definition, a shopping European Small: 5,000 - 19,999 Sq m Limerick Tipperary Kilkenny Wexford centre must be at least 5,000 sq m. Applying 1 6 1 South 2 2 this locally, the national total Gross Lettable Area 5 2 3 2 European Medium: 20,000 - 39,999 Sq m (GLA) falls to 1.72 million sq m as 40% of the Waterford Kerry 2 5 1 European Large: 40,000 - 79,999 Sq m countries shopping centres are less than 3 Cork 6 10 1 5,000 sq m. European Very Large: 80,000 Sq m + Source: DTZ Sherry FitzGerald Research Spring 2013 | Irish Shopping Centres and Retail Parks: A Stock Analysis 5 Shopping Centre Market

Results from the study reveal that only five centres or 9% of the Table 3 entire stock of shopping centre space nationwide is classified as AAA+ or higher. Furthermore, the accompanying figure 3 Ireland’s Top Shopping Centres - 2013 illustrates the spread of these centres by grade and in particular highlights the disparities that exist in relation to the distribution Density of shopping centres across the country in terms of both quality Size Rating Region (Per ‘000 of Population) and quantity. The Dundrum Town Centre has been identified as Irelands leading standalone shopping centre and the only centre to be Dublin Dundrum Town Centre Very Large AAA++ awarded AAA++ status. The Dundrum Town Centre’s unique tenant line-up such as House of Fraser, Harvey Nichols, Hamleys The Blanchardstown Dublin Large AAA+ and Hollister along with its location Centre and accessibility to transport contribute to its high ranking. The Dublin The Square Town Centre Large AAA+ Only five centres , The Square, or 9% of the and Pavillions make up Liffey Valley Shopping Dublin Large AAA+ entire stock of the rest of the top five centres and the Centre shopping centre entire “Large” category; all of which The Pavilions Shopping attained AAA+ status. Furthermore Dublin Large AAA+ space nationwide is Centre, Swords classified as AAA+ in terms of market performance in Dublin, these five centres are proving Crescent Shopping or higher Mid-West Medium AAA to be the most resilient and continue Centre, Co. Limerick to achieve new lettings. Dublin provides the highest provision of shopping centres of Dublin Jervis Shopping Centre Medium AAA the major cities, accounting for 38% of all the graded centres. Navan Town Centre, Furthermore, all of the larger grade AAA++ and AAA+ centres Mid-East Medium AAA are located in the capital. At the opposite end of the spectrum, Co. Meath Galway has the lowest provision of space of the major cities with Whitewater Shopping Mid-East Medium AAA the highest graded shopping centre at AA. Centre, Kildare Omni Park Shopping Dublin Medium AAA Centre

Source: DTZ Sherry FitzGerald Research

6 Irish Shopping Centres and Retail Parks: A Stock Analysis | Spring 2013 Shopping Centre Market

In the 20,000-39,999 sq m size category of retail centres, the was the top performing centre, closely followed by the Jervis Shopping Centre and the Navan Town Centre. Mahon Point shopping centre in Cork was the highest ranking shopping centre in the 5,000-19,999 sq m size category. There will be limited new development in 2013 and beyond. Convenience and discount retailers, which would include , Aldi and Lidl, will continue to be active in the market and will frequently develop their own stores. The National Asset Management Agency (NAMA) have announced proposals to invest up to €2 billion in Ireland over the next four NAMA have years to complete commercial and announced residential projects and to develop proposals to invest future Greenfield sites. One of the beneficiaries of this investment will up to €2 billion be the developers of the Charlestown in Ireland over the Shopping Centre in , North next four years Dublin who have secured funding of €12 million from NAMA. Construction is due to commence on a new cinema complex. Rents are beginning to stabilise in the best retail locations and this trend will continue as the economy improves in 2013 and consumer sentiment and retail sales start to increase. Rental growth will feature in prime locations first, but many secondary and tertiary locations will continue to experience high vacancy levels and static or falling rents.

Figure 4 Irish Shopping Centres >10,000 Sq M by Grade - 2013

Donegal 1

Donegal 1 Shopping Centre Sligo Monaghan Grade 2013 Leitrim Cavan Louth Mayo AAA++ Roscommon 2 1 Longford Meath Shopping Centre 2 AAA+ Sligo Monaghan1 1 4 Grade 2013 Westmeath Leitrim 3 8 5 1 2 Cavan Louth AAA Kildare Dublin Mayo Offaly AAA++ RosGalcwommonay 2 1 LongfordLaois 2 1 MeathWicklow AA 1 1 1 2 1 1 4 AAA+ Clare Tipperary Carlow 1 A NorthWestmeath 1 3 8 5 1Lime2 rick 1 Kilkenny Wexford AAA 1 TipOpeffalyrary Kildare Dublin G2alway South 1 1 Laois 2 1 AA Kerry 1 1 Wicklow Waterford1 1 1 1 Cork 1 Clare Tipperary Carlow A North 4 2 1 1 Limerick 1 Kilkenny Wexford 2 1 Tipperary South 1 1 Source: DTZ Sherry FitzGerald Research

Kerry 1 1 Spring 2013 | Irish Shopping Centres and Retail Parks: A Stock Analysis 7 Waterford 1 Cork 4 2 1 Retail Park Market

Similar to the shopping centre market, Table 4 development activity in the retail park market Regional Shopping Centre Density Levels slowed notably since the onset of the downturn more than five years ago. Density Region Construction activity in the retail park market ceased in 2009; (Per ‘000 of Population) since then, no new space has commenced construction and no new developments starts are scheduled at present. The total Border 382 stock of retail park space stood at 1.17 million sq m at the end of 2012. Dublin 224 An analysis of the total stock of retail Mid-East 234 park accommodation reveals that 24% There are large was located in the Dublin region. A Midlands 239 further 8% was located in Limerick disparities in with 7% in Cork and 4% in Galway. Mid-West 301 the spread of There are large disparities in the spread accommodation of accommodation across counties, South-East 311 across counties for example, Louth had a greater proportion of retail park space than South- West 158 the three regional centres at 8.4%. Furthermore, an analysis of the level of West 281 retail park space per thousand of the population reveals some interesting trends. In particular, based on Census of Population State 256 figures, Carlow had the largest proportion of retail park space per thousand of the population at 908 sq m. This was closely Source: DTZ Sherry FitzGerald Research followed by Louth with 804 sq m per thousand and Sligo with 702 sq m per thousand. The average level for the State stood at 256 sq m at the end of 2012. Dublin was slightly below this ranking with 224 sq m per thousand of the population. Figure 5 An analysis of the spread of retail park space across the regions Distribution of Irish Retail Parks - 2013 is more informative. From this analysis, the border region has the largest stock of retail park accommodation relative to the Donegal population, with 382 sq m per thousand. This is significantly 1 ahead of the other regions and the State. The lowest was in the South-West region with 158 sq m per thousand of the population. Donegal In terms of the profile of retail park space, there are currently 113 1 Leitrim retail parks in Ireland. Just over 20% of the parks are located in 2 Monaghan Dublin; a further 9% are located in Cork and 6% in Limerick. Sligo 2 1 1 1 Leitrim Cavan 2 Monaghan Mayo Louth Sligo Roscommon 3 2 3 2 1 1 3 1 1 1 3 1 Longford Cavan Meath Mayo Louth 2 Roscommon 3 4 3 2 1 1 3 Westmeath 3 1 Longford Meath Galway 4 1 Dublin 2 9 11 3 1 4 1 3 Offaly Kildare Westmeath 1 2 1 4 1 Dublin Galway 9 11 3 1 Laois Wicklow 1 3 Offaly Kildare Clare 2 1 Tipperary 1 1 1 1 2 North Laois Wicklow Carlow Clare 1 2 Tipperary 1 1 2 1 2 North Limerick Tipperary Kilkenny Carlow Wexford Small: <10,000 sq m 2 2 1 1 2 4 South 1 1 1 5 Limerick Tipperary Kilkenny 2 Wexford Small: <10,000 sq m 1 2 4 South 1 1 Waterford Medium: 10,000 - 20,000 sq m 2 1 5 Kerry 5 Medium: 10,000 - 20,000 sq m 2 1 Cork Waterford 7 3 Large: 20,000 - 30,000 sq m Kerry 5 2 1 Cork 7 3 Large: 20,000 - 30,000 sq m Very Large: >30,000 sq m

Source: DTZ Sherry FitzGerald Research Very Large: >30,000 sq m

8 Irish Shopping Centres and Retail Parks: A Stock Analysis | Spring 2013 Outlook for the future

The Irish economy has come a long way over the past five years and while recent economic indicators have been largely positive, the recovery remains strained by prevailing uncertainties such as a slowdown in world trade. The economy is estimated to grow by 1.5% in 2013, however as domestic demand remains fragile it may be some time before the true impact is witnessed in the retail market. In the shopping centre market, demand remains concentrated on the larger centres with a particular focus on the higher grade shopping centres. As a result, these locations are experiencing greater demand with vacancy rates remaining low. The performance of secondary and tertiary retail is location specific, with poorly located and inadequately designed developments nationwide proving the least attractive for occupiers. In the retail park market, trading conditions remain challenging. The strength of expansion in the retail park market from 2004- 2007 coincided with strong performance in the Irish residential market and subsequent growth in consumer expenditure. Similarly, stability is expected to return to the retail park market in line with an emerging stability in the housing market. On a positive note, the housing market and in particular the Dublin market appears to have turned a corner in 2012 and as such the retail park market is expected to experience a similar trend.

Spring 2013 | Irish Shopping Centres and Retail Parks: A Stock Analysis 9 AUThORS Marian Finnegan Chief Economist, Director Research +353 (0) 1 237 6341 marian.fi [email protected]

Siobhan Moloney Research Manager +353 (0) 1 237 6317 [email protected]

Karl Stewart Director of Retail +353 (0) 1 639 9347 [email protected]

About DTZ Sherry FitzGerald DTZ Sherry FitzGerald is the sole Irish affi liate of DTZ, a UGL company, a global leader in property services. With Irish offi ces in Dublin, Cork, Galway, Limerick and an associated offi ce in Belfast, we are the largest commercial property advisory network in Ireland and are part of Sherry FitzGerald Group, Ireland’s largest real estate adviser. We provide occupiers and investors around the world with best-in-class, end-to-end property solutions comprised of leasing agency and brokerage, integrated property management, capital markets, investment, asset management and valuation. DTZ has 47,000 employees including sub-contractors, operating across 217 offi ces in 53 countries. www.dtz.ie

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